Final Exam.docx

Mya Walker Final Exam 1. SuperDuper Company sells top-of-the-line skateboards. SuperDuper is concerned about maintaining high earnings and has chosen to use the periodic FIFO method of inventory costing. At the beginning of the year, SuperDuper had 5,000 skateboards in inventory, each costing $20. In April, SuperDuper purchased 2,000 skateboards at a cost of $22 and in August, purchased 4,000 more at a cost of $23. During the year, SuperDuper sold 9,000 skateboards for $40 each. a. Record each purchase SuperDuper made Beginning Inventory

5,000 units @ $20 =

$100,000

Purchase

2,000 units @ $22 =

44,000

Purchase

4,000 units @ $23 =

92,000

Cost of Goods Available for Sale

11,000

Units sold

9,000

$236,000

b. Determine SuperDuper’s cost of goods sold using FIFO. FIFO Cost of goods sold

5000 * 20

100,000

2,000 * 22

44,000

2,000 * 23

46,000

9,000

$190,000

2. Assume the same facts as problem 1 above, except that SuperDuper is more concerned with minimizing taxes and uses LIFO. Determine SuperDuper’s Cost of Goods Sold using LIFO.

LIFO Cost of goods sold

4,000 * 23

92,000

2,000 * 22

44,000

3,000 * 20

60,000

9,000

$196,000

Mya Walker Final Exam

4. Using your answers to problems 1–3, determine the following: a. Which of the methods yields the lowest cost of goods sold for SuperDuper? FIFO b. Which of the methods yields the highest ending inventory for SuperDuper? FIFO

1. Springfield Corporation purchases a new machine on March 3, 20X4 for $35,600 in cash. It pays an additional $3,400 to transport and set up the machine. Springfield’s accountant determines that the equipment has no residual value and that the useful life is five years. It is expected to generate 2,400,000 units during its life. Assume Springfield employs the half-year convention. a. Record the purchase of the machine. Date

Account Title

Mar 3 20x4

Machine

Debit

Credit

39000

Cash

39000

b. Assume that Springfield uses the straight-line method of depreciation. Record depreciation expense for the first two years of the machine’s life. Depreciation Expense = $39,000/5 years Depreciation Expense = $7,800 per year

20X4:

Take 1/2 of first year due to half year convention = $3,900

20X5:

expense = $7,800

c. Assume that Springfield uses the double-declining balance method of depreciation. Record depreciation expense for the first two years of the machine’s life. Straight line rate = 1/5 Double declining rate = 2/5

Mya Walker Final Exam 20X4 Depreciation Expense = $39,000 × 2/5 × 1/2 = $7,800 20X5 Depreciation Expense = ($39,000 − $7,800) × 2/5 = $12,480

d. Assume that Springfield uses the units-of-production method of depreciation. During Year 1, the machine produces 600,000 units. During Year 2, the machine produces 578,000 units. Record depreciation expense for the first two years of the machine’s life.

Depreciation Rate = $39,000/2,400,000 units Depreciation Rate = 0.01625 per unit

20X4 Depreciation Expense = 600,000 units × 0.01625 20X4 Depreciation Expense = $9,750 (no need to adjust for half year since expense is based on usage rather than time)

20X5 Depreciation Expense = 578,000 units × 0.01625 20X5 Depreciation Expense = $9,393